Joint destiny
Like it or not, Britain will remain undeniably European
For those addicted to the tragi-comedy of modernday soap operas, here’s the plot line so far. After a long period of growing frustration with the European Union, Britain votes in a referendum to leave, plunging the ruling government into turmoil. But then a new Boadicea, Theresa May, emerges phoenix-like from the ashes, to promise that Brexit means Brexit, and that even no deal would be better than a bad deal. In voting for Brexit, Britain also voted for immigration controls, she declares, even though no such question was asked; her apparent popularity soars.
Hubristically, she attempts to consolidate her power with an election, during which her shortcomings are cruelly exposed. All but defeated, she retires to the Italian Tyrol for a walking holiday. While away, an unlikely pretender emerges, a man who had previously forsworn any ambition to be prime minister and was until quite recently thought of as politically dead in the water. The seeming puppet of big business and City interest, he is the treacherous “Spreadsheet Phil”.
Brexit doesn’t quite mean Brexit, the Chancellor ventures; actually, things will remain exactly the same even after we leave for a transition period of up to three years. This would include allowing free movement to continue. Britain, moreover, will remain “recognisably European” for any foreseeable future.
Never mind that this is the only form of Brexit likely to pass Parliament, the hard Brexiteers have come hurtling back from all corners of the globe, fearful that in their absence a coup d’etat was being staged. There had been no such Cabinet agreement, they insist. Apparently reinvigorated by her intake of Alpine air, May seems to agree. Freedom of movement will end as scheduled in March 2019, No 10 insists, in an apparent rebuke to Philip Hammond. But hold on a moment. Whose side is she really on? And what does she actually mean by “free movement will end”? Yes, obviously, once Britain has left the EU it will no longer be bound by the treaties that enshrine free movement. But that doesn’t mean something very similar won’t replace them, at least for a time. Perhaps she’s only trying to square the circle in her openly warring Cabinet. Defeated but unbowed, could Boadicea be making a comeback? If you are finding this hard to keep up with, don’t worry; it’s all an everyday story of the Great British Brexit Soap, now in its second season with no doubt many more to come. If you’ve missed a few episodes, relax; the end game is still a long way off.
But it is not for the sake of anticipating the plot line that I write this column. Rather it is to explore the notion that whatever happens, Britain will remain “recognisably European”. In some respects, this is only a statement of the obvious. For better or worse, Britain is inescapably part of Europe; its history and future are irredeemably bound up in the continent’s fortunes. Whatever we do, we cannot escape geography.
What is more, many of the things we today think of as part of the “European model” are in fact substantially British inventions, whether it be universal healthcare and other trappings of the modern welfare state, human rights, the free trade ideology that lies at the heart of the EU’S single market, or, indeed, rule of law and parliamentary democracy itself. Ironically, it was Britain that led from the front in pushing for both the internal market and for EU enlargement. I was also recently surprised to discover that Bank of England secondees were key to designing the plumbing behind Europe’s single currency, the euro, even though Britain itself never joined. In any case, it is the British
‘Britain is inescapably part of Europe; its history and future are bound up in the continent’s fortunes’
model that has instructed large parts of its European counterpart.
Nor is it clear that Europe even has a recognisable model in the first place. In economic and social terms, for instance, Latvia has very little in common with France.
What Hammond was getting at in saying that Britain would remain unmistakably European is that after Brexit it will not engage in a race to the bottom on tax and regulation. This was in marked contrast to a previous interview, when he said that if Europe didn’t give the UK decent access to the single market, it would be forced to compete as a low tax, low regulation economy – Singapore, as it were, on Europe’s very doorstep. Now he’s keen to send out a more conciliatory message. Yet the new mood music does no more than recognise an underlying reality. To move to a low tax, small state economy would require a degree of political and social upheaval for which, at least for now, there appears to be very little electoral support.
Britain is about middle of the European pack in terms of its tax and spend as a proportion of GDP. We neither tax nor spend nearly as much as France and the Nordics, nor are we as high as Germany, but against the rest of the EU, we are pretty similar. And the broad numbers haven’t changed much for almost 70 years.
In periods of economic turmoil, such as the mid-seventies and immediately following the financial crisis, total managed expenditure as a share of output has naturally risen sharply, but the more normal pattern is for somewhere between 40pc and 35pc. No post-war British government, including that of Margaret Thatcher, has managed to breach this floor for more than a year or so. In this sense, Thatcher failed to break the mould. The tax burden shows much the same characteristics. The UK economy seems temperamentally incapable of supporting a tax burden of anything above 40pc; anything more causes acute economic indigestion. But hardly ever does it fall below 35pc. You have to go back to the interwar years to see tax and spend at significantly less than 30pc. No political movement of any significance suggests such a shift back in time.
It is an article of faith among libertarians that Brexit will naturally drive the UK towards low tax status, but if so, it is bound to be a profoundly difficult passage. The history, which long pre-dates British membership of the European Union in this regard, demonstrates strong conformity with the European norm. The pressures are, in any case, all the other way around; whether funded via tax or social insurance, healthcare costs will inevitably keep on rising.
There may be more that can be done with regulation once outside the EU, but even here the UK economy will be hamstrung by the need to conform to the standards applied by the other major economies it trades with. Like it or not, Britain is destined to remain unmistakably European.